Glance across today’s business school classrooms and you will see as many, if not more, female students as male. But the reality is that few female students choose to specialize in finance during and after their studies, even when they tend to perform generally better in the classroom. Finance curricula tend to be gender blind and this is, moreover, most probably the case of the financial industry as a whole. This observation pushed Profs. Estefania Santacreu-Vasut and François Longin to investigate students’ reactions to gender-related news in the context of finance. And in order to do that, they decided to follow an experimental approach using a simulation tool, baptized SimTrade, whose main advantage is to contextualize a financial experiment with social factors.

Undoing barriers to finance

From the labor market to the political arena, women have long-since faced barriers in their access to finance. Economists explain that one of the reasons why women face these barriers in accessing the financial market originates from the fact that women are over-represented among the poor: poverty implies that women tend to lack collateral, which prevents them from accessing loans in the traditional financial industry, thereby leading them to be considered as “un-bankable”. Women also tend to be less financially literate than men, which also limits their participation to the economy and their ability to make financial decisions.

Another explanation is that these barriers are not the result of economic inequality but are rather rooted in cultural, linguistic and historical practices including patrilineal inheritance laws, or agricultural specialization, for example. These may have shaped economic specialization together with the emergence of gender roles. Finally, experimental approaches investigate whether gender inequality is explained not in terms of reflecting barriers but in behavioral differences that may include, for example, females exhibiting higher risk-aversion and lower taste for competition.

Female students in finance: high achievers, low pursuers

According to statistics stemming from research at ESSEC Business School, female students perform better than male students in the classroom but are fewer to decide to continue to study finance and to embrace a career in finance. So why is that? The answer partly lies in the fact that the narrowing of gender gaps since the beginning of the 20th century has been spectacular, in particular in the labor market. While the overall gender gap in labor force participation has narrowed, it has done heterogeneously across occupations. That is, the gender gap varies across certain jobs. One of the latest studies regarding these gaps argues that part of the difference is directly related to work organization (Goldin, 2014). Occupations in the corporate, financial and legal industries, where temporal flexibility is lowest, tend to lag behind in achieving greater gender equality.

Another reason why the lack of temporal flexibility hurts women the most relates to the allocation of time within households, itself related to gender roles (Hicks et al. 2015). Indeed, extant research in the economics of time use and household economics shows that women do significantly more household labor and care giving, regardless of whether they work or not on the labor market. This would explain why women may self-select themselves into occupations where temporal flexibility is highest, and disregard those, among which finance is a prominent example, which are less flexible.

Finally, another explanation that can explain why women do not choose finance as a career may be directly related to cultural expectations regarding gender roles that will tend to orient female students towards certain career choices. These cultural expectations may permeate our society through media and entertainment such as movies like “The Wolf of Wall Street”.

Research and gender decision patterns

Research was carried out among the student population at ESSEC using a trading simulator (SimTrade), with a random critical event occurring – the naming of either a new male or female CEO at the head of an up-and-coming company. Results suggest a very interesting pattern in trading behavior related to the identity of the CEO but also of the trader. In particular, what seems to matter is not whether the elected CEO shares the gender of the trader, a situation described as homophily – a feature of social interactions related to the fact that interconnection tends to be more frequent among individuals that are similar to each other, rather than among dissimilar individuals. The concept can be applied to different dimensions such as gender, as well as age, religion, and ideology. Interestingly, homophily reflects biases that can be driven by preferences or information, for instance, risk-averse preferences. Network formation also plays an important role in explaining the persistence of homophily in the long term. In this article’s experimental setting, investor homophily (students’ preference to see the appointment of CEOs of their same gender and buy shares when this is the case) may reflect some of these biases, as well as the fact that the participant may identify with the scenario more when the CEO appointed shares their gender. Importantly, homophily permeates social interactions and may also operate outside of the trading simulation – in the financial corporations where recruiters may favor the recruitment of their own gender – thus reinforcing existing barriers.

Why finance needs women

There are three broad reasons why it is important to increase female representation in the finance field. First, from the perspective of efficiency, if women are not accessing this labor market due to barriers, it means the industry is wasting a pool of talent or, alternatively, that human capital is not well allocated. In this light, ensuring equal opportunity in accessing the financial industry and decreasing barriers would be a win-win situation for all. The second reason is distributional. Inequality itself may be detrimental. One potential reason lies in the hypothesis that women’s decision-making characteristics differ from that of men’s, a subject that has been widely debated regarding women’s participation on corporate boards. If this is the case, diversity could indeed bring different attitudes and perspectives that could be beneficial to the financial market. Finally, and not the least, the third reason is ethical. Decreasing barriers to develop capabilities, as explained by Amartya Sen, is valuable by itself and offers a different perspective on what economic development means.

From a purely quantitative standpoint, recent estimates point to significant gains being achieved from increased gender equality. For instance, a recent study from the McKinsey Global Institute, 2015 quantifies the gains from gender equality to adding $12 trillion to global growth. While such studies focus mostly on economic gains, these benefits can also be symbolic and qualitative in nature as such advances may foster trust in the potential for anyone, regardless of gender, but also of other socio-demographic characteristics, to thrive.

Among other economists, Duflo, 2012, have carried out research that suggests that role models play an essential part in encouraging emulation. Thankfully, role models in the financial and leadership fields for younger generations to follow already exist. In the vanguard of female presence are the figures of Janet Yellen, head the Federal Bank, or Angela Merkel and Hillary Clinton, in the political arena. Moreover, Christine Lagarde, head of the IMF, is one of these leaders who is actually pushing the gender equality agenda.